What business processes were primarily impacted by the deficiencies identified in Benihana's control activities?
Benihana Franchise · 2024 FDDAnswer from 2024 FDD Document
trol activities necessary to address the risks of material
misstatement, as well as the completeness and accuracy over the information used in those controls. Additionally, certain controls were not executed as designed or were performed without sufficiently documented supporting evidence. The business processes impacted primarily consisted of payroll, accounts payable and property and equipment. Additionally, in certain cases controls were redesigned and implemented without a sufficient period of time remaining to evidence operating effectiveness.
- The Company did not design and maintain formal and effective controls over user access to certain information systems to ensure adequate restriction of users and privileged access to venue level transaction processing applications and IT systems maintained by third parties. As a result, it is possible that the Company's business process controls that depend on the accuracy and completeness of data or financial reports generated by these information technology systems could be adversely affected due to the lack of operating effectiveness of information technology controls.
- In certain instances, the Company determined there was inappropriate application of technical accounting pronouncements for certain transactions and disclosures.
Source: Item 22 — CONTRACTS (FDD pages 73–74)
What This Means (2024 FDD)
According to Benihana's 2024 Franchise Disclosure Document, the company's control activities had deficiencies that primarily impacted payroll, accounts payable, and property and equipment. These deficiencies stemmed from a redesign of certain controls in 2021 that did not fully address the risks of material misstatement or ensure the completeness and accuracy of information used in those controls. Additionally, some controls were not executed as designed or lacked sufficient documentation.
Another identified weakness was the lack of formal and effective controls over user access to certain information systems. This could potentially affect the accuracy and completeness of data or financial reports generated by these systems, which are crucial for business process controls. Benihana also determined instances of inappropriate application of technical accounting pronouncements for certain transactions and disclosures.
While these material weaknesses did not result in a material misstatement of the annual or interim consolidated financial statements, they did create the potential for material accounting errors. Benihana has taken steps to remediate these weaknesses, including modifying the journal entry review process and increasing the precision and specificity of control activities related to payroll, accounts payable, and property and equipment. They have also improved control activities related to information technology user access security and hired additional experienced accounting personnel.